Mineral Deposits (MDL)

Royal Bank of Scotland has cut its recommendation on the minerals explorer from “buy" to “hold", despite lifting its target price.

Taking advantage of the record gold price, and seeing little benefit in holding gold and zircon assets, the company recently demerged its Sabodala gold mine in Senegal in return for a 16.6 per cent stake in the newly Canadian-listed venture Teranga Gold, which now owns the project.

At a three-year high of about $4.50, some might think that some heat could come out of the stock given its lower exposure to the soaring gold price, but the broker has raised its target price from $4.52 to $5.05.

The main focus now for
Mineral Deposits
will be the 90 per cent stake in the Grande Cote zircon project (GZCP) in Senegal, which could process 55 million tonnes per annum of mineral sands. The estimated cost to develop it is $US400 million.

“It is our understanding that MDL is pursuing all options to finance the development of the GZCP, including debt funding, and joint venture structures with other mineral sands industry companies and offtakers," says RBS.

Following the demerger and loan repayments to MDL, RBS estimates that MDL has $60 million in cash with a $120 million value on its Teranga stake.